Smart Grid sales
across the world in the last three years at installed
prices have grown by CAGR of approx. 35% and climbed to $36.5 billion
in 2012. Given the general global economic demise during this period
these figures are remarkable. However they include a steady flow of
refurbishment business that has for more than 10 years incrementally
improved and smartened up the control and reliability of the electrical
network.

If we strip out these numbers then
growth in pure Smart Grid is
significantly lower. The main task in delivering a Smart Grid has to be
in installing and bringing together Smart Grid systems such as AMI,
Automatic Distributed Response and Interfacing at the customer end with
Distributed Energy and Smart Buildings. This is in order to win
“Negawatts” and achieve the main aim of Smart Grid; which is to
accommodate the maximum amount of renewable power on the grid and
reduce CO2 emissions.

Our report shows
that the supply side is changing to meet this
challenge. In 2012 $19.5 billion was spent on acquiring and
consolidating the Smart Grid supply business almost double the spend in
2011. Investment through Venture Capital amounted to $779 million after
adjusting for senior debt finance transactions and although this was a
decline on 2011 it fell short of the general decline in the cleantech
industry.

The structure is changing with a perceptible but slow move away from
the dominance of the international ‘majors’ to the medium and smaller
specialist companies who are increasing their share of the business. In
addition a significant number of new entrants from outside the
industry; from the IT & Comms business, are increasing competition
and strengthening the industry. The industry is still too fragmented
with hundreds of companies below minimum economic size and
consolidation will continue at the current pace for many years to come.

We are confident that the supply side will not hold back Smart Grid’s
development. The supply structure is taking on a new shape as the
traditional electrical transmission and distribution suppliers are
competing with, or forming alliances with, the “new boys” from the
digital world of IT, Communications and Controls.

The traditional players certainly have a major role to play, although
not a dominant one across all fields of pure Smart Grid. They have the
financial muscle to take on major contracts that will become larger
with time. The Smart Grid supply industry is in good shape and will not
hold back the enormous potential of the new Smart Grid.

The technology is in place to meet the challenge of Smart Grid and
there are no known roadblocks here that will restrict its
development. The new technology surrounding communications and
“Big Data” has yet to be proven in the Smart Grid environment however
it is already being used in other industries at the required scale.

Regional Country Variations

China & Asia
Asia has still yet to install much of its electrical grid and
this creates a double edged sword with the benefit of starting with a
pure Smart Grid system not hampered by the problems of a hybrid
development but the disadvantage of requiring much larger sums of
investment.

On balance it has a stronger potential to rapidly reach large-scale
implementation than the other two major regions Europe and North
America;
because it is one part of a major infrastructure plan to provide,
energy, transport and communications services for the majority of
countries in the region. It has strong economic growth that at the
moment is less likely to be blown off course. Vast differences exist
between the capacity and capability of telecommunications networks in
rural and metropolitan areas to play their part and Smart Grid
deployment varies enormously across the region.

The countries that lead on Smart Grid development in Asia include
Australia, Japan, Thailand, Singapore, South Korea and China. China’s
State Grid Corporation has started what will be the largest Smart Grid
roll out program with roughly 350 million smart meters to be installed
by 2020.

Our report shows that in 2012 China
spent more on Smart Grid than any
other country overtaking the USA for the first time. They are
installing for the most part locally manufactured equipment from
indigenous suppliers, but gradually western technology acquired through
alliance / partnering agreements is coming through.

North America
Our figures show that up to 2011 North America was the number one
investor in Smart Grid systems but has now been overtaken by China.
This is disappointing given that the 2009 American Recovery and
Reinvestment Act provided a major incentive for the industry with more
than $4 billion in grant funding for Smart Grid program demonstrations.
It does have the strongest supply industry and has spawned a number of
impressive startup companies. It is likely to produce the strongest
suppliers for the Smart Grid “Big Data” sector that will capture much
of the business in the rest of the world. However implementing the
demand model could become more of a challenge in the USA than most
other developed markets and if so this would drastically hold back
Smart Grid growth.

Europe
Europe has some of the world’s most favourable policies for
driving Smart Grid deployment. The European Union (EU) has implemented
policies on increasing energy efficiency, installing more renewable
energy sources, and reducing greenhouse gas emissions all by at least
20% by 2020.

Currently
it has some major economic restructuring ahead to solve
sovereign debt which is likely to delay these targets and in turn Smart
Grid deployment.

The electrical transmission and distribution industry consists of both
public and private ownership and is large scale and financially
relatively strong. The supply side is strong as European manufacturers
are leaders in electrical grid technology and the deployment of Smart
Grid. On the negative side regulatory policy on standards and
interoperability is weak and the decentralised nature of utility
markets leads to difficulties in sharing of technology demonstration
programs.

The Framework on which to Build
Smart Grid is not yet in Place

Two fundamental
changes need to be made here if Smart Grid is to
deliver. The first is to change the model from its present central
structure to a hybrid decentralised one that will allow all the
stakeholders to contribute and benefit from. Micro-generation and
Micro-grids need to be incorporated into the electrical supply system
because they can generate from Variable Renewable Energy (VRE), help
balance out supply and demand, deliver locally and make the system more
flexible, reliable and efficient.

The second is that it can’t be left to the present owners of the
electrical network. Even if this could be organised through the
electrical utilities and they could acquire the skills and manage the
new technology they could not raise the $2,000 billion needed to build
the world Smart Grid.

Our report suggests that a new business model for the development of
Smart Grid in many countries, particularly the UK, could be based
around capital investment coming from sovereign / state owned
investment and pension funds; possibly from the Middle East and Asia.
The day to day operation of balancing and operating Smart Grid would
still be the responsibility of the utility companies whilst the IT and
Communication companies would supply and operate IT infrastructures and
the billing and pricing mechanism.